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What’s Next for Mortgage Rates? Zillow Expert Says 2024 Could Be a ‘Turning Point’
By Leslie Cook MONEY RESEARCH COLLECTIVE
Current mortgage rates have dropped from 7.79% to 6.62% over the past two months — but will the trend continue?
Last year ended on a positive note for many homebuyers. After briefly flirting with 8% in October, mortgage rates had dropped by more than 1 percentage point by the end of December, prompting a small housing market revival and hopes for an even bigger comeback in 2024.
The question, of course, is whether those lower rates will hang around. After all, 2023 started with rates just above 6% (and the expectation of them going even lower) — but then they turned around and headed higher. Will this year be any different?
According to Skylar Olsen, chief economist at Zillow, this year isn’t likely to repeat the same pattern as last. Rather, she says, “a good characterization of how to think about [2024] would be as another turning-point year.”
The turnabout has everything to do with interest rates: Current mortgage rates have dropped from 7.79% to 6.62% over the past two months — a significant change over a relatively short time period. And amid economic growth and gains in the fight against inflation, most industry analysts look forward to continued improvement.
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View RatesBut we shouldn’t necessarily expect rates to sustain that fast rate of decline. Olsen points out that the current slide started due to the government’s decision to sell fewer Treasury bonds on the market, which pushed the price up but the yield on the bonds down (taking mortgage rates down, as well).
“So we got this lovely surprise that helped the 10-year [Treasury] fall, and we’re not at 8% anymore,” says Olsen, who spoke to Money in late November.
As the economy continues to slowly settle and the Federal Reserve holds off on further rate hikes, she adds, “that slope of improvement will be more gradual.”
In other words, we shouldn’t expect mortgage rates to return to the record lows of the pandemic years (unless something drastic and unpredictable happens). But lower rates are already impacting would-be buyers: Monthly payments have dropped by several hundred dollars as a result and are easing the affordability crunch many aspiring homebuyers feel.
Home sellers are also benefiting from the improved rate environment. The keywords for homeowners last year were “the locked-in effect.” People who bought a home with a 3% or 4% rate weren’t willing to sell and buy a new one at 7% or 7.5%. And to be clear, many who bought at those ultra-low rates still remain firmly locked in.
But some sellers who bought at slightly higher rates may now realize that rates won’t get near pandemic lows again, and they’re readjusting their rate expectation when it comes to feeling comfortable about selling.
“What we’re seeing is that what they consider a low-enough rate is increasing because our expectation of getting back to low rates is shedding,” says Olsen. “If we don’t expect to get back to 5%, [a rate of] 6% looks OK. It’s like, what are you waiting for?”
The change in seller attitude is already being seen in small increases in new home listings over the past few months, which bodes well for a market that has been inventory-deprived for years. This “turning point” of a year could be quite positive… if current rate and listing trends hold.
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Leslie Cook is Money's lead real estate editor, covering news stories about mortgages and how rate movements affect the housing market and writing and editing stories that inform our readers about real estate trends and how they affect homebuyers and sellers. Leslie writes a weekly newsletter, Money Moves, that covers a wide range of real estate topics in addition to her weekly articles. Her work has been featured on Apple News, MSN and ConsumersAdvocate.org. Leslie has been covering the mortgage and real estate industry at Money since 2019 and has interviewed industry leaders, such as Lawrence Yun, chief economist at the National Association of Realtors, and Glenn Kelman, CEO of brokerage Redfin. She has been a guest on the This Morning with Gordon Deal radio show, interviewed by The Mortgage Note, and served as moderator for ServiceLink’s State of Homebuying webinar. While at Money, Leslie has contributed to several of Money’s rating and ranking features, including Best Places to Live, Best Places to Travel and Changemakers. She has also played a major role in researching and selecting Money’s Best Banks rankings for the past four years. Before joining Money as a staff writer, Leslie was a reporter for Caribbean Business Newspaper in San Juan, Puerto Rico, covering human resources, telecommunications and computers. She graduated cum laude from Bryn Mawr College in Pennsylvania with a bachelor’s degree in history. The research and interviewing skills learned there have contributed to Leslie’s ability to provide accurate information on her area of expertise and elicit informative responses from her interviewees.